(Reuters) - Phoenix Group (PHNX.L), Britain’s largest owner of closed life assurance funds, is considering buying some of the bulk annuity portfolios that have come on the market in recent months, it said on Thursday.
Bulk annuity deals involve insurers taking over a company’s final salary pension scheme and are becoming more common as businesses look to reduce their risks and insurers look for new sources of income.
Phoenix’s focus, though, remains Britain’s 300 billion pound-plus “closed life” market, with bulk annuities just an addition, its CEO told Reuters, speaking after the group reported a doubling in first-half operating profit.
“We see annuities as complementary and evolutionary to what we do, but this is an evolution rather than a refocusing,” Clive Bannister said, adding bulk annuities already make up 13 billion pounds of Phoenix’s 75 billion of assets under management.
Premiums written in the bulk annuities market totalled nearly 5 billion pounds in the first half of 2017 and may top 10 billion this year for the third year in a row, consultant Hymans Robertson said this month.
Phoenix expects demand in the bulk annuities market to grow to 350 billion pounds ($448 billion) in the next decade.
Insurer Prudential (PRU.L) has said it may sell part of its 45 billion pound annuity back book, though Bannister declined to say whether Phoenix was interested..
“There are potentially ginormous deals and we’re not in that end of the market because we’re focused on what we think is proportionate and where we can use our own funds,” he said.
Phoenix has about 500 million pounds of cash to fund deals, with headroom to take on debt up to the point where group leverage increases to 25 percent to 35 percent, Finance Director Jim McConville estimated.
Phoenix stuck by its forecast to generate 2.8 billion pounds of cash between 2016 and 2020, as it reported a 145 percent increase in cash generation to 360 million pounds for the six months to June 30.
Operating profit jumped to 215 million pounds from 107 million pounds a year ago.
Its shares were up 2 pct at 0820 GMT, one of the top ten performing stocks in the FTSE 250 index which was down 0.14 pct.
When asked about Brexit planning, Bannister said: “We’re not complacent but unlike many other companies we’re exclusively focused on the UK ... so Brexit is largely going to pass Phoenix by.”
($1 = 0.7814 pounds)
Reporting by Esha Vaish and Noor Zainab Hussain in Bengaluru, additional reporting by Carolyn Cohn in London; Editing by Mark Potter and Rachel Armstrong